10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20429

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from              to             

Commission File No. 000-32827

COAST BANCORP

(Exact name of Registration as Specified in its Charter)

California	77-0567091
(State of incorporation or organization)	(IRS Employer Identification No.)

500 Marsh Street, San Luis Obispo, CA 93401

(Address of principal executive offices)

(805) 541-0400

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes:     x     No:     o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes:     o    No:     x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Common Stock — As of May 1, 2007, there were 682,900 shares of the issuer’s common stock outstanding.

Transitional Small Business Disclosure Format (Check one)                       Yes:     o    No:     x

FORWARD LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB INCLUDE FORWARD-LOOKING INFORMATION WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND ARE SUBJECT TO THE “SAFE HARBOR” CREATED BY THOSE SECTIONS.  THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.  SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING FACTORS: COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS A DETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THE PROVISION FOR POSSIBLE LOAN LOSSES; CHANGES IN THE REGULATORY ENVIRONMENT; CHANGES IN BUSINESS CONDITIONS, PARTICULARLY IN SAN LUIS OBISPO COUNTY; VOLATILITY OF RATE SENSITIVE DEPOSITS; OPERATIONAL RISKS INCLUDING DATA PROCESSING SYSTEMS FAILURES OR FRAUD; ASSET/LIABILITY MATCHING RISKS AND LIQUIDITY RISKS; CHANGES IN THE SECURITIES MARKETS; THE ABILITY TO SATISFY THE REQUIREMENTS OF THE SARBANES-OXLEY ACT AND OTHER REGULATIONS GOVERNING INTERNAL CONTROLS; AND POTENTIAL ECONOMIC EFFECT OF THE WAR ON TERRORISM AND THE WAR IN IRAQ AND AFGHANISTAN.

THEREFORE, THE INFORMATION CONTAINED IN THIS DOCUMENT SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING THE BUSINESS PROSPECTS OF COAST BANCORP AND COAST NATIONAL BANK.

MOREOVER, WHEREVER PHRASES SUCH AS SIMILAR TO, “IN MANAGEMENT’S OPINION,”“MANAGEMENT BELIEVES,” OR “MANAGEMENT CONSIDERS” ARE USED, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGE OF MANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIME AND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THE SAME RISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKING STATEMENTS.

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INDEX

COAST BANCORP

PART I – FINANCIAL INFORMATION

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COAST BANCORP & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

March 31, 2007 and December 31, 2006

ITEM I - FINANCIAL STATEMENTS
			March 31, 2007			December 31, 2006
ASSETS
(in thousands)
Cash and due from banks			$	8,863		$	7,173
Federal funds sold			13,800			17,800
TOTAL CASH AND CASH EQUIVALENTS			22,663			24,973
Investment securities available for sale			7,953			7,926
Loans:
Commercial			45,069			41,726
Real estate - construction			28,693			28,126
Real estate - other			62,236			62,298
Consumer			4,915			4,705
		TOTAL LOANS	140,913			136,855
Net deferred loan fees			(313		)	(352		)
Allowance for credit losses			(1,414		)	(1,388		)
		NET LOANS	139,186			135,115
Premises and equipment			8,993			9,740
Deferred taxes			417			472
Federal Reserve Bank stock and Federal Home Loan Bank stock, at cost			964			946
Accrued interest and other assets			1,414			1,567
		TOTAL ASSETS	$	181,590		$	180,739
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand			$	39,164		$	39,556
Money market and NOW			49,225			50,036
Savings			7,081			6,673
Time deposits of $100,000 or more			51,293			50,709
Other time deposits			16,321			15,556
		TOTAL DEPOSITS	163,084			162,530
Junior subordinated debt securities			5,155			5,155
Other liabilities			350			343
		TOTAL LIABILITIES	168,589			168,028
Commitments and contingencies			—			—
Stockholders’ equity:
Preferred stock - 10,000,000 authorized, none outstanding			—			—
Common stock no par value; 10,000,000 shares authorized;
issued and outstanding: 682,900 in 2007 and 679,600 in 2006			7,082			7,035
Additional paid-in capital			90			76
Retained earnings			5,827			5,611
Accumulated other comprehensive income - net unrealized losses on available-for-sale securities			2			(11		)
		TOTAL STOCKHOLDERS’ EQUITY	13,001			12,711
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	181,590		$	180,739

The accompanying notes are an integral part of these consolidated financial statements

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COAST BANCORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

For the Three Months Ended March 31, 2007 and 2006

	For the Three Months Ended March 31,
(In thousands, except for per share numbers)	2007		2006
Interest income:
Interest and fees on loans	$	3,091	$	2,917
Interest on investment securities	87		56
Interest on federal funds sold	217		242
Other interest income	26		8
TOTAL INTEREST INCOME	3,421		3,223
Interest expense:
Interest on money market and NOW accounts	418		267
Interest on savings deposits	36		27
Interest on time deposits	795		676
Interest on junior subordinated debt securities	120		109
TOTAL INTEREST EXPENSE	1,369		1,079
Net interest income	2,052		2,144
Provision for loan losses	25		40
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES	2,027		2,104
Noninterest income:
Service charges on deposit accounts and other	85		76
Gain on sale of loans and servicing fees	36		129
Mortgage packaging fees	15		—
Gain on sale of premises and equipment	1		—
TOTAL NONINTEREST INCOME	137		205
Noninterest expense:
Salaries and benefits	975		913
Net occupancy expense (net of rental income)	129		138
Equipment expense	76		86
Other expense	606		633
TOTAL NONINTEREST EXPENSE	1,786		1,770
INCOME BEFORE TAXES	378		539
Income taxes	162		219
NET INCOME	$	216	$	320
Per share data
Earnings per share - Basic	$	0.32	$	0.47
Earnings per share - Diluted	$	0.30	$	0.45

The accompanying notes are an integral part of these consolidated financial statements

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COAST BANCORP & SUBSIDIARY

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

											Accumulated
			Common Stock			Additonal					Other
(In thousands, except number of shares)	Comprehensive Income		Number of Shares	Amount		Paid-In Capital		Retained Earnings			Comprehensive Income			Total
Balance at January 1, 2006			674,100	$	6,950	$	—	$	4,373		$	(80	)	$	11,243
Exercise of stock options including the realization of $7,716 in tax benefits			5,500	85										85
Stock-based compensation expense						76								76
Cash dividends				—				(136		)				(136		)
Comprehensive Income
Net income	$	1,374						1,374						1,374
Unrealized loss on available-for-sale securities, net of taxes of $46,569	69										69			69
Total comprehensive income	$	1,443
Balance at December 31, 2006			679,600	$	7,035	$	76	$	5,611		(11		)	$	12,711
Exercise of stock options - no tax benefits			3,300	47										47
Stock-based compensation expense						14								14
Comprehensive Income
Net income	$	216						216						216
Unrealized loss on available-for-sale securities, net of taxes of $9,017	13										13			13
Total comprehensive income	$	1,672
Balance at March 31, 2007			682,900	$	7,082	$	90	$	5,827		$	2		$	13,001

The accompanying notes are an integral part of these consolidated financial statements

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COAST BANCORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

For the Three Months Ended March 31, 2007 and 2006

						For the Three Months Ended
						March 31,
(In thousands)						2007			2006
Operating activities:
Net income						$	216		$	320
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation and amortization						115			125
Provision for credit losses						25			40
Stock-based compensation						14			19
Gain on sale of loans						(14		)	(127		)
Other items - net						245			96
		NET CASH PROVIDED BY OPERATING ACTIVITIES				601			473
Investing activities:
Net increase in loans						(4,363		)	(1,609		)
Proceeds from loans sold						243			1,516
Proceeds of Federal Reserve Bank and Federal Home Loan Bank stock						(18		)	—
Proceeds from sale of premises and equipment						691			—
Purchase of premises and equipment						(65		)	(53		)
				NET CASH USED BY INVESTING ACTIVITIES		(3,512		)	(146		)
Financing activities:
Increase (decrease) in deposits						554			(2,922		)
Principle payments on notes payable						—			(45		)
Proceeds from exercise of options, including tax benefits						47			36
	NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES					601			(2,931		)
			INCREASE IN CASH AND CASH EQUIVALENTS			(2,310		)	(2,604		)
Cash and cash equivalents at beginning of period						24,973			34,670
					Cash and cash equivalents at end of period	$	22,663		$	32,066

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Note 1    Basis of Presentation

The accompanying financial information has been prepared in accordance with the Securities and Exchange Commission rules and regulations for quarterly reporting and therefore does not necessarily include all information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. This information should be read in conjunction with the Company’s Annual Report for the year ended December 31, 2006 filed on Form 10-KSB.

Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. In the opinion of management, the unaudited financial information for the three month periods ended March 31, 2007 and 2006 reflect all adjustments, consisting only of normal recurring accruals and provisions, necessary for a fair presentation thereof.

Some matters discussed in this Form 10-QSB may be “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause our actual results to be materially different from the results expressed or implied by our forward-looking statements. These statements generally appear with words such as “anticipate”, “believe”, “estimate”, “may”, “intend”, and “expect”.

Note 2    Earnings Per Share

Effective December 31, 1997, Coast National Bank (the “Bank”) adopted SFAS No. 128, “Earnings per Share,” which has subsequently been adopted by the Coast Bancorp (the “Company” or “Coast Bancorp” or “Bancorp”). Accordingly, basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share also considers the number of shares issuable upon the assumed exercise of outstanding common stock options. All earnings per common share amounts presented have been restated in accordance with the provisions of this statement.

Earnings Per Share Detail

	For the Three Months Ended
	March 31,
	2007	2006
	Shares	Shares
Used in Basic EPS	680,790	674,573
Dilutive Effect of Outstanding Stock Options	41,163	28,862
Used in Earnings Per Share - Diluted	721,953	703,435

Note 3    Stock-Based Compensation

In December 2004, Financial Accounting Standards Board (“FASB”) revised SFAS 123 and issued under its new name, “Share-Based Payment.” This statement eliminates the previously allowable alternative to use Opinion 25’s intrinsic value method of accounting. Instead, this Statement generally requires entities to recognize the cost of employee services received in exchange for awards of stock options, or other equity instruments, based on the grant-date fair value of those awards. This cost is recognized over the period during which an employee is required to provide service in exchange for the award, generally the vesting period.

The Company adopted this Statement in 2006 for all new stock option awards as well as any existing awards that are modified, repurchased or cancelled. In addition, the unvested portion previously awarded options have also been recognized as expense during the first quarter of 2007. During the first quarter of 2007, $13,602 was expensed by the Company for stock option related compensation.

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Prior to January 1, 2006, the Company accounted for stock-based compensation under the FASB’s SFAS No. 123, “Accounting for Stock-Based Compensation,” which allowed companies to use an intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.

SFAS No. 123 (R) requires that cash flows resulting from the realization of tax deductions in excess of the compensation cost recognized (excess tax benefits) are to be classified as financing cash flows. Before the adoption of SFAS No. 123 (R), the Company presented all tax benefits realized from the exercise of stock options as operating cash flows in the Statement of Cash Flows. There were no excess tax benefits for the first quarter of 2007.

Note 4    Current Accounting Pronouncements

As discussed in the preceding note, SFAS No.123 (R) became effective January 1, 2006 and has been fully implemented by the Company.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.” The statement amends SFAS No. 140 by (1) requiring the separate accounting for servicing assets and servicing liabilities, which arise from the sale of financial assets; (2) requiring all separately recognized serving assets and servicing liabilities to be initially measured at fair value, if practicable; and (3) permitting an entity to choose between an amortization method or a fair value method for subsequent measurement for each class of separately recognized servicing assets and servicing liabilities. The Company adopted the statement as if January 1, 2007. Management does not expect that the adoption of this new standard will have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” This interpretation applies to all tax positions accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 clarifies the application of SFAS No. 109 by defining the criteria that an individual tax position must meet in order for the position to be recognized within the financial statements and provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition for tax positions. The Company adopted the interpretation as of January 1, 2007. Management does not expect that the adoption of this new interpretation will have a material impact on the Company’s financial position, results of operations or cash flows.

 In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company on January 1, 2008 although early adoption is permitted. The Company has chosen not to implement the early adoption of SFAS No. 157 and is currently evaluating the impact of this standard on its consolidated financial statements.

In February 2007, FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” The Standard permits an entity to measure certain financial assets and financial liabilities at fair value. The Standard’s objective is to improve financial reporting by allowing entities to mitigate volatility in reported earnings caused by the measurement of related assets and liabilities using different attributes, without having to apply complex hedge accounting provisions. The Standard becomes effective as of the beginning of the fiscal year that begins after November 15, 2007. Early adoption is allowed, within 120 days after the first day of the fiscal year, as long as the requirements of SFAS 157 are met either currently or prior to the adoption of SFAS 159. The Company has chosen not to implement the early adoption of SFAS 159 and is currently assessing the impact the adoption of the standard will have on its consolidated financial statements.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB. This report contains statements relating to future results of the Company that are considered to be “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, credit loss reserve adequacy, and simulation of changes in interest rates and litigation results. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions, interest rate fluctuations, competitive product and pricing pressures within the Company’s markets, equity and fixed income market fluctuations, personal and corporate customers’ bankruptcies, inflation, acquisitions and integrations of acquired businesses, technological change, changes in law, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, political and global changes arising from the terrorist attacks of September 11, 2001 as well as the war in Iraq and its aftermath, success in gaining regulatory approvals when required as well as other risks and uncertainties detailed elsewhere in this quarterly report or from time to time in the filings of the Company with the Securities Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The accompanying financial information should be read in conjunction with Coast Bancorp’s Annual Report on Form 10-KSB for the year ended December 31, 2006.

Description of Business

Coast Bancorp

Coast Bancorp headquartered in San Luis Obispo, California, is a California corporation incorporated in 2001. Coast Bancorp became the bank holding company of Coast National Bank on May 31, 2001 through a corporate reorganization. In the reorganization, Coast National Bank became the wholly-owned subsidiary of Coast Bancorp and the shareholders of the Bank became shareholders of Coast Bancorp. Coast Bancorp is operated through a two-tiered corporate structure. At the holding company level the affairs of Coast Bancorp are overseen by a Board of Directors elected by the shareholders of Coast Bancorp at the annual meeting of shareholders. The business of the Bank is overseen by a Board of Directors elected by Coast Bancorp, the sole owner of the Bank. As of the date of this Form 10-QSB the respective members of the Board of Directors of the Bank and the Board of Directors of Coast Bancorp are identical. Coast Bancorp is subject to the regulations of, and examination by, the Board of Governors of the Federal Reserve System. At present, Coast Bancorp does not engage in any material business activities other than the ownership of the Bank. Financial information presented herein for March 31, 2007 and comparative information for December 31, 2006 and March 31, 2006 is inclusive of the consolidated Company.

Coast National Bank

The Bank was chartered June 16, 1997 (charter #23222) by The Office of the Comptroller of the Currency as a national bank. The Bank commenced operations on that date with two offices, 16 employees and $6,250,000 in capital. The original branch offices were located at 486 Marsh Street, San Luis Obispo and 1199 Grand Avenue, Arroyo Grande, California. Since that time, additional branch offices were opened in June 1998 at 948 Morro Bay Boulevard in Morro Bay, California, in July 1999 at 1193 Los Osos Valley Road in Los Osos, California and most recently in March 2005 at 2138 Spring Street in Paso Robles, California.

When the Bank opened for business in June 1997, it purchased the real estate and building that housed the Arroyo Grande branch office. On October 14, 1999, the Bank purchased an adjacent lot next to the San Luis Obispo main office on Marsh Street. A few months later on February 1, 2000, the Bank also purchased the contiguous property and building that was home to the San Luis Obispo main office at 486 Marsh Street. Construction of a new head office building on the adjacent lot began on October 11, 2001 and was completed on November 25, 2002. The new main office, located at 500 Marsh Street is approximately 10,700 square feet with the San Luis Obispo branch operation occupying the ground floor and the administrative offices occupying the second floor. Half of the original main office

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at 486 Marsh Street now houses the Bank’s Small Business Lending Center and the Bank’s Note Department while the other half is leased to various businesses.

On March 29, 2002, the Bank purchased a vacant site on Morro Bay Boulevard in Morro Bay that is approximately one block from the existing branch. The purpose for this acquisition was the eventual construction and relocation of the Morro Bay branch to a larger facility with a drive-through lane. In October 2003 construction began on the new Morro Bay facility which was completed and occupied in August 2004. The branch consists of approximately 2700 square feet with two drive through lanes.

The Bank applied for and received approval from the Comptroller of the Currency for another branch office at 2138 Spring Street, Paso Robles, California which opened in March 2005. The Bank also purchased a lot at 2045 Spring Street, Paso Robles, California with the intention of relocating the Paso Robles branch. However, the lot was not adequate for the relocation of the branch and on October 26, 2006, the Bank purchased a new lot at 2110 Spring St, Paso Robles, California. The Bank intends to relocate the Paso Robles branch to this larger lot, sometime in the future. On March 20, 2007, the lot at 2045 Spring Street, Paso Robles, California was sold.

In July 2002, a loan production office was opened at 930 South Broadway Street in Santa Maria, California and in July 2004 moved to 301 S. Miller Street, Ste. 110 in Santa Maria, California. In December 2005, the office was relocated to 411 Betteravia Rd., Ste 201, Santa Maria, California. It was decided that the Bank could more efficiently, and just as effectively, serve our Santa Barbara County customers from our San Luis Obispo SBA office, and as of April 1, 2007 the Santa Maria lease was terminated. In October 2004 a loan production office was opened in Santa Barbara, California at 15 West Carrillo Street, Ste. 252. The original lease on this facility expired and the office was closed in September 2005. In June 2005, the Bank opened a new loan production office at 7429 N. First St., Ste. 104, Fresno, California. In July of 2006, the Fresno office was relocated to 466 W. Fallbrook Ave., #109, Fresno, California.

As of March 31, 2006, the Bank had a total of 75 employees. A number of these employees are part-time however. Part-time employees are converted to full-time equivalent employees on the percentage of their weekly hours worked compared to 40 hours. On a full-time equivalent basis, employees represent 66 positions. The Bank values its employees. They are actively engaged individually and as a team in contributing to the Bank’s realization of its vision and mission.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported. In preparing its consolidated financial statements, the Company is required to make judgments and estimates that may have a significant impact upon its financial results. Certain accounting policies require the Company to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and are considered critical accounting policies. The estimates and assumptions used are based on the historical experiences and other factors, which are believed to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods. For example, the Company’s determination of the adequacy of its allowance for credit losses is particularly susceptible to management’s judgment and estimates. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Allowance for Credit Losses

The allowance for credit losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The allowance for loan losses is determined based on management’s assessment of several factors: reviews and evaluation of individual loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experiences and the levels of classified and nonperforming loans.

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Loans are considered impaired if, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. In measuring the fair value of the collateral, management uses assumptions and methodologies consistent with those that would be utilized by unrelated third parties.

Changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for credit losses and the associated provision for loan losses.

Available for Sale Securities

Available for sale securities are reported at fair market value. The fair market value is based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments.

Income Taxes

Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the consolidated financial statements. A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.

Overview

Earnings Summary

Consolidated net income for the three months ended March 31, 2007 was $216,000 or $0.30 diluted earnings per share compared to net income of $320,000 or $0.45 diluted earnings per share for the same period during 2006 a 32.5% decrease. The decrease in net income was primarily due to smaller gains resulting from the sale of the guaranteed portion of government guaranteed loans and an increase of interest expense.

Balance Sheet Summary

As of March 31, 2007, total consolidated assets of Coast Bancorp were $181.6 million in comparison to total assets of $180.7 million as of December 31, 2006. This represents an increase of $900,000, or 0.5%. The increase in assets was funded by an increase in savings accounts and time deposits. Compared to total assets of $183.0 million at March 31, 2006, assets have decreased by $1.4 million, or 0.77%, over the last twelve months. The decrease was primarily the result of a decrease in time deposits over $100,000. Over the last year, the Company has strategically reduced the amount of time deposits over $100,000 as a percentage of total deposits while remaining competitive with customers that have existing relationships with the Company.

The Bank has continued to grow its loan portfolio. Gross loans as of March 31, 2007 were $140.9 million in comparison to total loans of $136.9 million as of December 31, 2006. This represents an increase of $4.0 million, or 2.9%. Compared to total loans of $133.9 million at March 31, 2006, the Company has increased loans by $7.0 million, or 5.2%, over the last twelve months. The loan portfolio has grown as a result of continued strong loan demand in the Bank’s market area and the Bank has drawn on Fed funds to fund this growth.

Total deposits as of March 31, 2007 were $163.1 million in comparison to total deposits of $162.5 million as of December 31, 2006. This represents an increase of $600,000, or 0.37%. Compared to total deposits of $166.0 million at March 31, 2006, deposits have decreased by $2.9 million, or 1.8%, over the last twelve months. This decrease is due to the Company’s strategic realignment of its deposit portfolio.

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Earnings Analysis

Net Interest Income

A significant component of the Bank’s earnings is from net interest income. Net interest income is the amount by which the interest and amortization of fees generated from loans and other earning assets exceed the cost of funding those assets, usually deposit account interest expense. Net interest income depends on the difference between gross interest and fees earned on the loans and investment portfolios and the interest rates paid on deposits and borrowings (the “interest rate spread”). Net interest income after the provision for credit losses was $2,027,000 for the quarter ended March 31, 2007, compared to $2,104,000 for the quarter ended March 31, 2006, representing a decrease of 3.7%. This decrease was primarily the result of an increase in interest rates paid, especially in the NOW and money market accounts. The percentage change in the average interest rate paid on deposits did increase faster than the percentage change in the average interest rates earned on loans for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006. However, this was somewhat offset by an increase in loans as compared to the decrease in deposits for the same time periods.

The following tables present, for the three months ended March 31, 2007 and 2006, the distribution of average assets, liabilities and shareholders’ equity. In addition, the total amounts of interest income from average interest-earning assets and the resultant yields, and the dollar amounts of interest expense and average interest-bearing liabilities, expressed both in dollars and in rates are also presented. Non-accrual loans are included in the calculation of the average balances of loans, and interest not accrued is excluded.

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Average Rates and Balances

(dollar amounts in thousands)

	For the Three Months Ended
	March 31, 2007							March 31, 2006
				Interest		Average					Interest		Average
	Average			Earned		Yield or		Average			Earned		Yield or
	Balance			or Paid		Rate Paid		Balance			or Paid		Rate Paid
Assets
Interest-Earning Assets:
Investment Securities	$	7,929		$	87	4.45	%	$	7,872		$	56	2.89	%
Federal Funds Sold	16,797			217		5.24	%	21,988			242		4.46	%
Other Earning Assets	955			26		11.04	%	923			8		3.52	%
Loans	137,926			3,091		9.09	%	133,756			2,917		8.84	%
Total Interest-Earning Assets	163,607			3,421		8.48	%	164,539			3,223		7.94	%
Cash and Due from Bank	6,682							8,076
Premises and Equipment	9,672							8,272
Other Real Estate Owned	—							—
Accrued Interest and Other Assets	1,911							1,697
Allowance For Loan Losses	(1,389		)					(1,194		)
Total Assets	$	180,483						$	181,390
Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Money Market and NOW:	$	50,458		$	418	3.36	%	$	44,033		$	267	2.46	%
Savings	6,820			36		2.14	%	8,365			27		1.31	%
Time Deposits under $100,000	15,915			181		4.61	%	15,490			129		3.38	%
Time Deposits of $100,000 or More	50,908			614		4.89	%	57,093			547		3.89	%
Trust Preferred Securities	5,155			120		9.44	%	5,155			109		8.58	%
Total Interest-Bearing Liabilities	129,256			1,369		4.30	%	130,136			1,079		3.36	%
Non-Interest Bearing Liabilities
Demand Deposits	37,819							39,328
Other Liabilities	552							491
Stockholders’ Equity	12,856							11,435
Total Liabilities and Stockholders’ Equity	$	180,483						$	181,390
Net Interest Income				$	2,052						$	2,144
Net Yield on Interest-Earning Assets						5.09	%						5.28	%
(Net Interest Margin)

Net interest income is affected by changes in the amount and mix of our interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in the yields we earn on interest-earning assets and rates we pay on interest-bearing deposits and other borrowed funds, referred to as a “rate change.”

The following table sets forth changes in interest income and interest expense for each major category of interest-earning asset and interest-bearing deposit accounts, and the amount of change attributable to volume and rate changes for the three months ended March 31, 2007 and 2006. Changes not solely attributable to rate or volume have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

14

Rate/Volume Analysis

(dollar amounts in thousands)

	Three Months Ended March 31, 2007
	compared to the
	Three Months Ended March 31, 2006
	Increase (Decrease) in interest income and
	expense due to change in:
	Volume			Rate		Total
Interest-Earning Assets:
Investment Securities	$	4		$	27	$	31
Federal Funds Sold	(211		)	186		(25		)
Other Earning Assets	—			18		18
Loans	92			82		174
Total Interest Income	(115		)	313		198
Interest-Bearing Liabilities:
Transaction Accounts	3			148		151
Savings	—			9		9
Time Deposits	3			49		52
Time Deposits $100,000 or more	6			61		67
Trust Preferred	0			11		11
Total Interest Expense	12			278		290
Net Interest Income	$	(128	)	$	36	$	(92	)

Interest expense was $1,369,000 for the quarter ended March 31, 2007 compared to $1,079,000 for the quarter ended March 31, 2006, representing an increase of 26.9%. This increase reflects higher interest rates paid on all interest bearing accounts which is offset by decreased volume.

 The net interest margin is the ratio of net interest income to average earning assets. This ratio is useful in allowing the Company to monitor the spread between interest income and interest expense between reporting periods irrespective of the growth of the Company’s assets. The net interest margin decreased 19 basis points to 5.09% for the quarter ended March 31, 2007 as compared to 5.28% for the quarter ended March 31, 2006. This decrease was primarily due to the higher rates paid on all interest bearing accounts.

Non-interest Income

Non-interest income represents deposit account service charges, other types of fee income and gains on the sales of loans and securities. Non-interest income for the quarter ended March 31, 2007 totaled $137,000 compared to $205,000 for the same period in 2006 a 33.2% decrease. This decrease was substantially due to selling fewer guaranteed portions of government guaranteed loans. While the volume of lending in the Small Business Administration Department has decreased, the Bank has still realized gains from the sale of the guaranteed portions that have been sold.

Non-interest Expense

Non-interest expense represents salaries, occupancy expenses, professional expenses, outside services and other miscellaneous expenses necessary to conduct business. Non-interest expense for the quarter ended March 31, 2007 totaled $1,786,000 compared to $1,770,000 for the same period in 2006 for an increase of 0.9%. This increase is substantially due to an increase in salaries and employee benefits. The number of full time equivalent employees was 66 in March 2007 compared to 63 for March 2006. The continuing growth of the loan portfolio contributed to the increase.

15

Income Taxes

Due to the Company’s lower net income before taxes of $378,000 for the quarter ended March 31, 2007 as compared $539,000 for the same period in 2006, the Company recorded a lower tax provision. The tax provision for the first quarter of 2007 was $162,000 as compared to $219,000 during the same period in 2006.

Balance Sheet Analysis

Investment Portfolio

The following table summarizes the amounts and distribution of our investment securities held as of the dates indicated, and the weighted average yields as of March 31, 2007:

Maturity Distribution of Investment Securities

(dollar amounts in thousands)

	March 31, 2007						Deecember 31, 2006
					Weighted
	Book		Market		Average		Book		Market
	Value		Value		Yield		Value		Value
Available-for-Sale Securities
U.S. Treasuries	—		—		—		—		—
U.S. Government and Agency Securities
Within One Year	3,977		3,978		3.61	%	2,985		2,972
One to Five Years	3,973		3,975		4.51	%	4,960		4,954
Five to Ten Years	—		—		0	%	—		—
After Ten Years	—		—		0	%	—		—
Total U.S. Treasury and Government
Agency Securities	7,950		7,953		4.06	%	7,945		7,926
Mutual Funds	—		—		0	%	—		—
Mortgage Backed Securities	—		—		0	%	—		—
Total Available-for-Sale Securities	$	7,950	$	7,953	4.06	%	$	7,945	$	7,926

Securities may be pledged to meet security requirements imposed as a condition to receipt of deposit of public funds and for other purposes. At March 31, 2007, the book value of securities pledged to secure public deposits and other purposes was $994,008 or 12.5% of available for sale securities.

16

Loan Portfolio

The following table sets forth the components of total net loans outstanding in each category at the date indicated:

Loan Portfolio Composition

(dollar amounts in thousands)

	March 31, 2007			December 31, 2006
Loans
Commercial loans	$	45,069		$	41,726
Real Estate - Construction	28,693			28,126
Real Estate - Other	62,236			62,298
Consumer loans	4,915			4,705
Other	—			—
Total loans	140,913			136,855
Net Deferred Loan Costs (Fees)	(313		)	(352		)
Allowance for Loan Losses	(1,414		)	(1,388		)
Net Loans	$	139,186		$	135,115
Commitments
Standby Letters of Credit	$	2,858		$	2,012
Undisbursed Loans and Commitments to Grant Loans	62,187			48,768
Total Commitments	$	65,045		$	50,780

Asset Quality

As of March 31, 2007, the Company had five loan relationships on non-accrual of $2,345,708 and no loans 90 days or more past due and still accruing. As of March 31, 2006 the Company had one loan on non-accrual for $4,651 and no loans 90 day past due and still accruing. As of December 31, 2006, the company had five loans on non-accrual totaling $2,543,000 and no loans 90 days past due and still accruing.  The non-accrual loan relationships existing as of March 31, 2007 consist of four SBA guaranteed loans. All of these loans are well collateralized.

As of March 31, 2007 and 2006 the Company had no OREO or restructured loans.

Provision for Credit Losses

Management of the Bank and the Company believes that the allowance for credit losses is adequate. The Bank has established a monitoring system for loans in order to identify impaired loans and potential problem loans and to permit periodic evaluation of impairment and adequacy of the allowance for loan losses in a timely manner. The monitoring system and allowance for loan losses methodology have evolved over a period of years, and loan classifications have been incorporated into the determination of the allowance for loan losses. This monitoring system and allowance methodology includes a loan-by-loan analysis for all classified loans as well as loss factors for the balance of the unclassified portfolio. Classified loans are reviewed individually to estimate the amount of probable losses that needs to be included in the allowance. These reviews include analysis of financial information as well as evaluation of collateral securing the credit. Loss factors on the unclassified portion of the portfolio are based on such factors as historical loss experience, current portfolio delinquency and trends, and other inherent risk factors such as economic conditions, concentrations in the portfolio, risk levels of particular loan categories, internal loan review and management oversight.

The Company made a contribution to the allowance for loan losses for the three months ended March 31, 2007 of $25,000 as compared to no contributions made for the same period in 2006. Management believes that the allowance, which equals 1.02% of net loans at March 31, 2007, is adequate to cover future losses. The allowance for loan losses at December 31, 2006 was 1.01% of gross loans.

17

The following table summarizes, for the quarter ended March 31, 2007 and 2006, changes in the allowance for loan losses arising from loans charged-off, recoveries on loans previously charged-off, and additions to the allowance which have been charged to operating expenses:

Activity in the Allowance for Loan Losses

(dollar amounts in thousands)

	Three Months Ended
	March 31,
	2007			2006
Outstanding Net Loans
Average for the Year	$	138,558		$	135,122
Allowance for Loan Losses:
Balance, beginning of period	$	1,388		$	1,183
Actual Charge-Offs:
Commercial	—			—
Consumer	—			—
Real Estate	—			—
Total Charge-Offs	—			—
Less Recoveries:
Commercial	—			1
Consumer	1			—
Real Estate	—			—
Total Recoveries	1			1
Net Loans Recovered (Charged-Off)	1			1
Provision for Loan Losses	25			40
Balance, end of period	$	1,414		$	1,224
Ratios:
Net Loans Charged-Off to Average Loans	0.00		%	0.00		%
Allowance for Loan Losses to Net Loans	1.02		%	0.91		%
Net Loans Recovered (Charged-Off) to Beginning Allowance for Loan Losses	0.07		%	0.08		%
Net Loans Recovered (Charged-Off) to Provision for Loan Losses	4.00		%	2.50		%
Allowance for Loan Losses to Non-performing Loans	61.67		%	24480.00		%

Funding

Deposits are our primary source of funds. At March 31, 2007, we had a deposit mix of 45.8% in time and savings deposits, 30.2% in money market and NOW deposits, and 24.0% in non-interest-bearing demand deposits. Our net interest income is enhanced by our percentage of non-interest-bearing deposits.

18

Return on Equity and Assets

The following table sets forth several key operating ratios for the three months ended March 31, 2007 and 2006:

Operating Ratios

	Three Months Ended
	March 31,
	2007		2006
Return on Average Assets	0.49	%	0.72	%
Return on Average Equity	6.81	%	11.35	%
Dividend Payout Ratio	0.00	%	0.00	%
Average Stockholder’s Equity to Average Total Assets	7.12	%	6.30	%

Capital Resources

Stockholders equity at March 31, 2007 was $13.0 million, compared to $12.7 at December 31, 2006. Stockholders equity increased primarily from net income of $216,000.

The Company is required to meet certain minimum risk-based capital guidelines and leverage ratios set by the bank regulatory authorities. The risk-based capital standards establish capital requirements that are more sensitive to risk differences between various assets, consider off balance sheet activities in assessing capital adequacy, and minimize the disincentives to holding liquid, low risk assets. The leverage ratio consists of tangible Tier 1 capital divided by average total assets.

Coast Bancorp and the Bank maintain capital ratios above the Federal regulatory guidelines for “well-capitalized” bank holding companies. The ratios for the Bank and Bancorp are as follows:

Capital Ratios

			Coast	Coast
	Regulatory Standard		National Bank	National Bank
	Adequately	Well	As of	As of
	Capitalized	Capitalized	March 31, 2007	December 31, 2006
Total risk-based capital ratio	8.00%	10.00%	12.50%	12.50%
Tier 1 risk-based capital ratio	4.00%	6.00%	11.55%	11.55%
Tier 1 leverage capital ratio	4.00%	5.00%	9.91%	9.65%

			Coast	Coast
	Regulatory Standard		Bancorp	Bancorp
	Adequately	Well	As of	As of
	Capitalized	Capitalized	March 31, 2007	December 31, 2006
Total risk-based capital ratio	8.00%	10.00%	12.65%	12.56%
Tier 1 risk-based capital ratio	4.00%	6.00%	11.24%	11.15%
Tier 1 leverage capital ratio	4.00%	5.00%	9.55%	9.33%

19

Liquidity

The objective of the Company’s asset/liability strategy is to manage liquidity and interest rate risk. Ultimately, management seeks to monitor the safety and soundness of the Bank and its capital base, while maintaining adequate net interest margins and spreads to provide an appropriate return to the stockholders. The Bank manages liquidity by maintaining a majority of its investment portfolio in federal funds sold and other liquid investments. The ratio of net loans to deposits, a key liquidity ratio, at March 31, 2007 was 85.4%, as compared to 83.1% at December 31, 2006, which are within acceptable liquidity levels for the Company.

Management is not aware of any future capital expenditures or other significant demands on commitments which would severely impair liquidity.

Item 3.  Controls and Procedures

Evaluation of Disclosure and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules, regulations and related forms, and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation as of March 31, 2007 of the filing of this Form 10-QSB, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

20

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Not applicable.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5 – OTHER INFORMATION

Not applicable.

ITEM 6 – EXHIBITS

(a)   EXHIBITS

Exhibit 10.1 - Paso Robles Property Sale Agreement

Exhibit 11 -    EARNINGS PER SHARE (See Note 2 under Item 1 – Basis of Presentation on page 8 of this report)

Exhibit 31 -    RULE 13a-14(a) CERTIFICATIONS

31.1    Certification of Chief Executive Officer

31.2    Certification of Chief Financial Officer

Exhibit 32 -    SECTION 1350 CERTIFICATIONS

32.1    Certification of Chief Executive Officer

32.2    Certification of Chief Financial Officer

21

Signatures

In accordance with the requirements of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		COAST BANCORP
Date:	May 15, 2007	/s/Jack C. Wauchope
		Jack C. Wauchope
		President/Chief Executive Officer
		Chairman of the Board
		(Principal Executive Officer)
Date:	May 15, 2007	/s/Karan C. Pohl
		Karan C. Pohl, CPA
		Senior Vice President
		Chief Financial Officer
		(Principal Financial Officer)

22

EX-10.1

Exhibit 10.1

COMMERCIAL PROPERTY PURCHASE AGREEMENT

AND JOINT ESCROW INSTRUCTIONS

(Non-Residential)

Date January 9, 2007, at Atascadero
California.

1. OFFER:

A.	THIS IS AN OFFER FROM                                      David Elson            “Buyer”). x Individual(s),
o A Corporation, o A Partnership, ¨ An LLC, o An LLP, or o Other
B.	THE REAL PROPERTY TO BE ACQUIRED is described as 2045 Spring Street
	, Assessor’s Parcel No.000822400, situated in Paso Robles,
	County of San Luis Obispo, California, (“Property”).
C.	THE PURCHASE PRICE offered is Six Hundred Fifty Thousand Dollars $650,000.00
D.	CLOSE OF ESCROW shall occur on             (date) (or x 45 Days After Acceptance).

2. FINANCE TERMS: Obtaining the loans below is a contingency of this Agreement unless: (i) either 2L or 2M is checked below; or (ii) otherwise agreed in writing. Buyer shall act diligently and in good faith to obtain the designated loans. Obtaining deposit, down payment and closing costs is not a contingency. Buyer represents that funds will be good when deposited with Escrow Holder.

A.    INITIAL DEPOSIT: Buyer has given a deposit in the amount of $ 6,500.00 to the agent submitting the offer (or to x Escrow Company ), by Personal Check (or o), made payable to Escrow which shall be held uncashed until Acceptance and then deposited within 3 business days after Acceptance or o Shall be deposited by Buyer directly to escrow company, with Escrow Holder, or o into Broker’s trust account.

B.INCREASED DEPOSIT: Buyer shall deposit with Escrow Holder an increased deposit in the amount of  $

within      Days After Acceptance, or o

C.FIRST LOAN IN THE AMOUNT
OF    

$ 520,000.00 NEW First Deed of Trust in favor of x Lender, o Seller,

OR oASSUMPTION of (or o“subject to”) Existing First Deed of Trust encumbering the Property, securing

a note payable at maximum interest of 6.870 % fixed rate, or     % initial adjustable

       rate with a maximum interest rate of       %, balance due in 30 years, amortized over

       30 years. (If checked: oand with a margin not to exceed     %, tied to the following

       index     .) Buyer shall pay loan fees/points not to exceed 1PT

       Additional terms

D.SECOND LOAN IN THE AMOUNT
OF                                                                               $
NEW Second Deed of Trust in favor of o Lender, o Seller,

OR q ASSUMPTION of (or o “subject to”) Existing Second Deed of Trust encumbering the Property,

securing a note payable at maximum interest of      % fixed rate, or      %

initial adjustable rate with a maximum interest rate of      %, balance due in      years,

amortized over      years. (If checked: o and with a margin not to exceed      %, tied to

the following index:     .) Buyer shall pay loan fees/points not to exceed

Additional terms

E.ADDITIONAL FINANCING TERMS:                                                                        $

F.BALANCE OF PURCHASE PRICE (not including costs of obtaining loans and other closing costs) in the amount of $123,500.00  to be deposited with Escrow Holder within sufficient time to close escrow.

G.PURCHASE PRICE (TOTAL)$ 650,000.00

H.LOAN APPLICATIONS: Within 7 (or o      ) Days After Acceptance, Buyer shall provide Seller a letter from lender or mortgage loan broker stating that, based on a review of Buyer’s written application and credit report, Buyer is prequalified or preapproved for any NEW loan specified above.

I.VERIFICATION OF DOWN PAYMENT AND CLOSING COSTS: Buyer (or Buyer’s lender or loan broker pursuant to 2H) shall, within 7 (or o ) Days After Acceptance, provide Seller written verification of Buyer’s down payment and closing costs.

J.LOAN CONTINGENCY REMOVAL: (i) Within 17 (or x 21 ) Days After Acceptance Buyer shall, as specified in paragraph 17, remove the loan contingency or cancel this Agreement; OR (ii) (if checked) o loan contingency shall remain in effect until the designated loans are funded.

K.APPRAISAL CONTINGENCY AND REMOVAL: This Agreement is (OR, if checked, o is NOT) contingent upon the Property appraising at no less than the specified purchase price. If there is a loan contingency, at the time the loan contingency is removed (or, if checked, x within 17 (or 21) Days after Acceptance), Buyer shall, as specified in paragraph 17, remove the appraisal contingency or cancel this Agreement. If there is no loan contingency, Buyer shall, as specified in paragraph 17, remove the appraisal contingency within 17 (or     ) Days after acceptance.

L.L. o NO LOAN CONTINGENCY (If checked): Obtaining any loan, in paragraphs 2C, 2D, 2E or elsewhere in this Agreement, is NOT a contingency of this Agreement. If Buyer does not obtain the loan and as a result Buyer does not purchase the Property, Seller may be entitled to Buyer’s deposit or other legal remedies.

M.    o ALL CASH OFFER (If checked): No loan is needed to purchase the Property. Buyer shall, within 7 (or
) Days After Acceptance, provide Seller written verification of sufficient funds to close this transaction.

N.SELLER FINANCING: For any Seller financing designated above, Buyer is to execute a note secured by a deed of trust in favor of Seller, on the terms and conditions set forth in the attached addendum (C.A.R. Form SFA).

O. ASSUMED OR “SUBJECT TO” FINANCING: Seller represents that Seller is not delinquent on any payments due on any loans. Seller shall, within the time specified in paragraph 17, provide Copies of all applicable notes and deeds of trust, loan balances and current interest rates to Buyer. Buyer shall then, as specified in paragraph 17, remove this contingency or cancel this Agreement. Differences between estimated and actual loan balances shall be adjusted at Close Of Escrow by cash down payment. Impound accounts, if any, shall be assigned and charged to Buyer and credited to Seller. Seller is advised that Buyer’s assumption of an existing loan may not release Seller from liability on that loan. If the Property is acquired subject to an existing loan, Buyer and Seller are advised to consult with legal counsel regarding the ability of an existing lender to call the loan due, and the consequences thereof.

3. CLOSING AND OCCUPANCY

A.Seller-Occupied or Vacant Units: Occupancy shall be delivered to Buyer at ¨ AM  ¨  PM, q on the date of Close Of Escrow; ¨on                                                                                                           ; or o no later than                                                               Days After Close Of Escrow. (C.A.R. Form PAA, paragraph 2.) If transfer of title and occupancy do not occur at the same time, Buyer and Seller are advised to: (i) enter into a written occupancy agreement; and (ii) consult with their insurance and legal advisors.

B.Tenant Occupied Units: Possession and occupancy, subject to the rights of tenants under existing leases, shall be delivered to Buyer on Close Of Escrow.

C.At Close Of Escrow, Seller assigns to Buyer any assignable warranty rights for items included in the sale and shall provide any available Copies of such warranties. Brokers cannot and will not determine the assignability of any warranties.

D.At Close Of Escrow, unless otherwise agreed in writing, Seller shall provide keys and/or means to operate all locks, mailboxes, security systems, alarms and garage door openers. If the Property is a unit in a condominium or located in a common-interest subdivision, Buyer may be required to pay a deposit to the Owners’ Association (“OA”) to obtain keys to accessible OA facilities.

4. SECURITY DEPOSITS: Security deposits, if any, to the extent they have not been applied by Seller in accordance with any rental agreement and current Law, shall be transferred to Buyer on Close Of Escrow. Seller shall notify each tenant, in compliance with the Civil Code.

5. ALLOCATION OF COSTS (if checked): Unless otherwise specified here, this paragraph only determines who is to pay for the report, inspection, test or service mentioned. If not specified here or elsewhere in this Agreement, the determination of who is to pay for any work recommended or identified by any such report, inspection, test or service is by the method specified in paragraph 17.

A. INSPECTIONS AND REPORTS:

(1)o Buyer o Seller shall pay far sewer connection, if required by Law prior to Close Of Escrow N/A

(2)o Buyer o Seller shall pay to have septic or private sewage disposal system inspected  N/A

(3)o Buyer o Seller shall pay to have domestic wells tested for water portability and productivity N/A

(4)o Buyer x Seller shall pay for a natural hazard zone disclosure report prepared by Seller’s Choice

(5)x Buyer o Seller shall pay for the following inspection report Property Inspection If Buyer Chooses To

(6)o Buyer o Seller shall pay for the following inspection report

B. GOVERNMENT REQUIREMENTS AND RETROFIT:

(1) o Buyer ¨ Seller shall pay for smoke detector installation and/or water heater bracing, if required by Law. Prior to Close Of Escrow,                           Seller shall provide Buyer a written statement of compliance in accordance with state and local Law, unless exempt.

(2) o Buyer o Seller shall pay the cost of compliance with any other minimum mandatory government retrofit standards, inspections and reports if required as a condition of closing escrow under any Law.

(3) oBuyer o Seller shall pay for installation of approved fire extinguisher(s), sprinkler(s), and hose(s), if required by Law, which shall be installed prior to Close Of Escrow. Prior to Close Of Escrow Seller shall provide Buyer a written statement of compliance, if required by Law.

C. ESCROW AND TITLE:

(1) xBuyer x Seller shall pay escrow fee Split 50/50

Escrow Holder shall be Seller’s Choice

(2) o Buyer x Seller shall pay for owner’s title insurance policy specified in paragraph 16

Owner’s title policy to be issued by Title Company of Seller’s Choice
(Buyer shall pay for any title insurance policy insuring Buyer’s lender, unless otherwise agreed in writing.)

D. OTHER COSTS:

(1)  o Buyer x Seller shall pay County transfer tax or transfer fee

(2)  o Buyer x Seller shall pay City transfer or transfer fee If applicable

(3)  o Buyer o Seller shall pay Owners’ Association transfer fees N/A

(4)  o Buyer o Seller shall pay Owners’ Association document preparation fees N/A

(5)  o Buyer o Seller shall pay for

(6)  o Buyer o Seller shall pay for

6. SELLER DISCLOSURES:

A.NATURAL AND ENVIRONMENTAL DISCLOSURES: Seller shall, within the time specified in paragraph 17, if required by Law: (i) deliver to Buyer earthquake guides (and questionnaire) and environmental hazards booklet; (ii) even if exempt from the obligation to provide an NHD, disclose if the Property is located in a Special Flood Hazard Area; Potential Flooding (Inundation) Area; Very High Fire Hazard Zone; State Fire Responsibility Area; Earthquake Fault Zone; Seismic Hazard Zone: and (iii) disclose any other zone as required by Law and provide any other information required for those zones.

B.ADDITIONAL DISCLOSURES: Within the time specified in paragraph 17, Seller shall provide to Buyer, in writing, the following disclosures, documentation and information:

(1)RENTAL SERVICE AGREEMENTS: (i) All current leases, rental agreements. service contracts, and other agreements pertaining to the operation of the Property; and (ii) a rental statement including names of tenants, rental rates, period of rental, date of last rent increase, security deposits, rental concessions, rebates, or other benefits. if any, and a list of delinquent rents and their duration, Seller represents that no tenant is entitled to any concession, rebate, or other benefit, except as set forth in these documents.

(2)INCOME AND EXPENSE STATEMENTS: The books and records, including a statement of income and expense for the 12 months preceding Acceptance. Seller represents that the books and records are those maintained in the ordinary and normal course of business, and used by Seller in the computation of federal and state income tax returns.

(3)¨TENANT ESTOPPEL CERTIFICATES: (If checked) Tenant estoppel certificates (C.A.R. Form TEC) completed by Seller or Seller’s agent, and signed by tenants, acknowledging: (i) that tenants’ rental or lease agreements are unmodified and in full force and effect (or if modified, stating all such modifications); (ii) that no lessor defaults exist; and (iii) stating the amount of any prepaid rent or security deposit.

(4)SURVEYS, PLANS AND ENGINEERING DOCUMENTS: Copies of surveys, plans, specifications and engineering documents, if any, in Seller’s possession or control.

(5)PERMITS: If in Seller’s possession, Copies of all permits and approvals concerning the Property, obtained from any governmental entity, including, but not limited to, certificates of occupancy, conditional use permits, development plans, and licenses and permits pertaining to the operation of the Property.

(6)STRUCTURAL MODIFICATIONS: Any known structural additions or alterations to, or the installation, alteration, repair or replacement of, significant components of the structure(s) upon the Property.

(7)GOVERNMENTAL COMPLIANCE: Any improvements, additions, alterations or repairs made by Seller, or known to Seller to have been made, without required governmental permits, final inspections, and approvals.

(8)VIOLATION NOTICES: Any notice of violations of any Law filed or issued against the Property and actually known to Seller.

(9)MISCELLANEOUS ITEMS: Any of the following, if actually known to Seller: (i) any current pending lawsuit(s), investigation(s), inquiry(ies), action(s), or other proceeding(s) affecting the Property, or the right to use and occupy it; (ii) any unsatisfied mechanic’s or materialman’s lien(s) affecting the Property; and (iii) that any tenant of the Property is the subject of a bankruptcy.

7. x ENVIRONMENTAL SURVEY (If checked): Within 24 Days After Acceptance, Buyer shall be provided a
phase one environmental survey report paid for and obtained by El Buyer IT Seller. Buyer shall then, as specified in paragraph 17, remove this contingency or cancel this Agreement.

8. CONDOMINIUM/PLANNED UNIT DEVELOPMENT DISCLOSURES:

A.SELLER HAS: 7 (or o ) Days After Acceptance to disclose to Buyer whether the Property is a condominium, or located in a planned unit development or other common interest subdivision.

B.If Property is a condominium, or located in a planned unit development or other common interest

subdivision, Seller has 3 (or ¨   ) Days After Acceptance to request from the OA (C.A.R. Form HOA): (i) Copies of any documents required by Law; (ii) disclosure of any pending or anticipated claim or litigation by or against the OA: (iii) a statement containing the location and number of designated parking and storage spaces; (iv) Copies of the most recent 12 months of OA minutes for regular and special meetings; and (v) the names and contact information of all OA’s governing the Property. (Collectively, “Cl Disclosures.”) Seller shall itemize and deliver to Buyer all CI Disclosures received from the OA and any CI Disclosures in Seller’s possession. Buyer’s approval of CI Disclosures is a contingency of this Agreement as specified in paragraph 17.

9. SUBSEQUENT DISCLOSURES: In the event Seller, prior to Close Of Escrow, becomes aware of adverse conditions materially affecting the Property, or any material inaccuracy in disclosures, information or representations previously provided to Buyer of which Buyer is otherwise unaware, Seller shall promptly provide a subsequent or amended disclosure or notice in writing, covering those items, However, a subsequent or amended disclosure shall not be required for conditions and material inaccuracies disclosed in reports ordered and paid for by Buyer.

10. CHANGES DURING ESCROW:

A.Prior to Close Of Escrow, Seller may only engage in the following acts, (“Proposed Changes”), subject to Buyer’s rights in paragraph 17: (i) rent or lease any vacant unit or other part of the premises; (ii) alter, modify, or extend any existing rental or lease agreement: (iii) enter into, alter. modify or extend any service contract(s); or (iv) change the status of the condition of the Property.

B.At least 7 (or x 10 ) Days prior to any Proposed Changes, Seller shall give written notice to Buyer of any Proposed Changes.

11. CONDITIONS AFFECTING PROPERTY:

A.Unless otherwise agreed: (i) the Property is sold (a) in its PRESENT physical condition as of the date of Acceptance and (b) subject to Buyer’s Investigation rights; (ii) the Property, including pool, spa, landscaping and grounds, is to be maintained in substantially the same condition as on the date of Acceptance; and (iii) all debris and personal property not included in the sale shall be removed by Close Of Escrow.

B.SELLER SHALL, within the time specified in paragraph 17, DISCLOSE KNOWN MATERIAL FACTS AND DEFECTS affecting the Property, including known insurance claims within the past five years, AND MAKE OTHER DISCLOSURES REQUIRED BY LAW.

C.NOTE TO BUYER: You are strongly advised to conduct investigations of the entire Property in order to determine its present condition since Seller may not be aware of all defects affecting the Property or other factors that you consider important. Property improvements may not be built according to code, in compliance with current Law, or have had permits issued.

D. NOTE TO SELLER: Buyer has the right to inspect the Property and, as specified in paragraph 17, based upon information discovered in those inspections: (i) cancel this Agreement; or (ii) request that you make Repairs or take other action.

12. ITEMS INCLUDED AND EXCLUDED:

A. NOTE TO BUYER AND SELLER: Items listed as included or excluded in the MLS, flyers or marketing materials are not included in the purchase price or excluded from the sale unless specified in 12B or C.

B. ITEMS INCLUDED IN SALE:

(1)All EXISTING fixtures and fittings that are attached to the Property;

(2)Existing electrical, mechanical. lighting, plumbing and heating fixtures, ceiling fans, fireplace inserts, gas logs and grates, solar systems, built-in appliances, window and door screens, awnings, shutters, window coverings, attached floor coverings, television antennas. satellite dishes, private integrated telephone systems, air coolers/conditioners, pool/spa equipment, garage door openers/remote controls, mailbox, in-ground landscaping, trees/shrubs, water softeners, water purifiers, security systems/alarms;

(3)A complete inventory of all personal property of Seller currently used in the operation of the Property and included in the purchase price shall be delivered to Buyer within the time specified in paragraph 17.

(4)Seller represents that all items included in the purchase price are, unless otherwise specified, owned by Seller. Within the time specified in paragraph 17, Seller shall give Buyer a list of fixtures not owned by Seller.

(5)Seller shall deliver title to the personal property by Bill of Sale, free of all liens and encumbrances, and without warranty of condition.

(6)As additional security for any note in favor of Seller for any part of the purchase price. Buyer shall execute a UCC-1 Financing Statement to be filed with the Secretary of State, covering the personal property included in the purchase, replacement thereof, and insurance proceeds.

C. ITEMS EXCLUDED FROM SALE:     NONE

13. BUYER’S INVESTIGATION OF PROPERTY AND MATTERS AFFECTING PROPERTY:

A.Buyer’s acceptance of the condition of, and any other matter affecting the Property is a contingency of this Agreement, as specified in this paragraph and paragraph 17. Within the time specified in paragraph 17, Buyer shall have the right, at Buyer’s expense unless otherwise agreed, to conduct inspections, investigations, tests, surveys and other studies (“Buyer Investigations”), including, but not limited to, the right to: (i) inspect for lead-based paint and other lead-based paint hazards; (ii) inspect for wood destroying pests and organisms; (iii) confirm the insurability of Buyer and the Property; and (iv) satisfy Buyer as to any matter of concern to Buyer. Without Seller’s prior written consent, Buyer shall neither make nor cause to be made: (i) invasive or destructive Buyer Investigations; or (ii) inspections by any governmental building or zoning inspector, or government employee, unless required by Law.

B.Buyer shall complete Buyer Investigations and, as specified in paragraph 17, remove the contingency or cancel this Agreement. Buyer shall give Seller, at no cost, complete Copies of all Buyer Investigation reports obtained by Buyer. Seller shall make Property available for all Buyer Investigations. Seller shall have water, gas. electricity, and all operable pilot lights on for Buyer’s Investigations and through the date possession is made available to Buyer.

14. REPAIRS: Repairs shall be completed prior to final verification of condition unless otherwise agreed in writing. Repairs to be performed at Seller’s expense may be performed by Seller or through others, provided that the work complies with applicable Law, including governmental permit, inspection and approval requirements. Repairs shall be performed in a good, skillful manner with materials of quality and appearance comparable to existing materials. It is understood that exact restoration of appearance or cosmetic items following all Repairs may not be possible. Seller shall: (i) obtain receipts for Repairs performed by others; (ii) prepare a written statement indicating the Repairs performed by Seller and the date of such Repairs; and (iii) provide Copies of receipts and statements to Buyer prior to final verification of condition.

15. BUYER INDEMNITY AND SELLER PROTECTION FOR ENTRY UPON PROPERTY: Buyer shall: (i) keep the Property free and clear of liens: (ii) Repair all damage arising from Buyer Investigations; and (iii) indemnify and hold Seller harmless from all resulting liability, claims, demands, damages and costs. Buyer shall carry. or Buyer shall require anyone acting on Buyer’s behalf to carry policies of liability, workers’ compensation and other applicable insurance, defending and protecting Seller from liability for any injuries to persons or property occurring during any Buyer Investigations or work done on the Property at Buyer’s direction prior to Close Of Escrow. Seller is advised that certain protections may be afforded Seller by recording a “Notice of Non-Responsibility” (C.A.R. Form NNR) for Buyer Investigations and work done on the Property at Buyer’s direction. Buyer’s obligations under this paragraph shall survive the termination of this Agreement.

16. TITLE AND VESTING:

A.Within the time specified in paragraph 17, Buyer shall be provided a current preliminary (title) report, which is only an offer by the title insurer to issue a policy of title insurance and may not contain every item affecting title. Buyer’s review of the preliminary report and any other matters which may affect title are a contingency of this Agreement as specified in paragraph 17.

B.Title is taken in its present condition subject to all encumbrances, easements, covenants, conditions, restrictions, rights and other matters, whether of record or not, as of the date of Acceptance except: (i) monetary liens of record unless Buyer is assuming those obligations or taking the property subject to those obligations; and (ii) those matters which Seller has agreed to remove in writing.

C.Within the time specified in paragraph 17, Seller has a duty to disclose to Buyer all matters known to Seller affecting title. whether of record or not.

D.At Close Of Escrow, Buyer shall receive a grant deed conveying title (or, for stock cooperative or long-term lease, an assignment of stock certificate or of Seller’s leasehold interest), including oil, mineral and water rights if currently owned by Seller. Title shall vest as designated in Buyer’s supplemental escrow instructions. THE MANNER OF TAKING TITLE MAY HAVE SIGNIFICANT LEGAL AND TAX CONSEQUENCES. CONSULT AN APPROPRIATE PROFESSIONAL.

E.Buyer shall receive a standard coverage owner’s CLTA policy of title insurance. An ALTA policy or the addition of endorsements may provide greater coverage for Buyer. A title company, at Buyer’s request, can provide information about the availability, desirability, coverage, and cost of various title insurance coverages and endorsements. If Buyer desires title coverage other than that required by this paragraph, Buyer shall instruct Escrow Holder in writing and pay any increase in cost.

17. TIME PERIODS; REMOVAL OF CONTINGENCIES; CANCELLATION RIGHTS: The following time periods may only be extended, altered, modified or changed by mutual written agreement. Any removal of contingencies or cancellation under this paragraph must be in writing (C.A.R. Form RRCR).

A. SELLER HAS: 7 (or o) Days After Acceptance to deliver to Buyer all reports, disclosures and information for
which Seller is responsible under paragraphs 5. 6A and B, 8A, 11B, 12B (3) and (4) and 16.

B. BUYER HAS: 17 (or o    ) Days After Acceptance, unless otherwise agreed in writing, to:

(1)complete all Buyer Investigations; approve all disclosures, reports and other applicable information, which Buyer receives from Seller; and approve all matters affecting the Property (including lead-based paint and lead-based paint hazards as well as other information specified in paragraph 6 and insurability of Buyer and the Property).

(2)Within the time specified in 17B(1). Buyer may request that Seller make repairs or take any other action regarding the Property (C.A.R. Form RR). Seller has no obligation to agree to or respond to Buyer’s

requests.

(3)By the end of the time specified in 17B(1) (or 2J for loan contingency or 2K for appraisal contingency), Buyer shall remove, in writing, the applicable contingency (C.A.R. Form RRCR) or cancel this Agreement. However, if the following inspections, reports or disclosures are not made within the time specified in 17A. then Buyer has 5 (or o) Days after receipt of any such items, or the time specified in 17B(1), whichever is later, to remove the applicable contingency or cancel this Agreement in writing: (i) government-mandated inspections or reports required as a condition of closing: (ii) Common Interest Disclosures pursuant to paragraph 8B, (iii) a subsequent or amended disclosure pursuant to paragraph 9; (iv) Proposed Changes pursuant to paragraph 10B; and (v) environmental survey pursuant to paragraph 7.

C. CONTINUATION OF CONTINGENCY OR CONTRACTUAL OBLIGATION; SELLER RIGHT TO CANCEL:

(1)Seller right to Cancel: Buyer Contingencies: Seller, after first giving Buyer a Notice to Buyer to Perform (as specified below), may cancel this Agreement in writing and authorize return of Buyer’s deposit if, by the time specified in the Agreement, Buyer does not remove in writing the applicable contingency or cancel this Agreement. Once all contingencies have been removed, failure of either Buyer or Seller to close escrow in time may be a breach of this Agreement.

(2)Continuation of Contingency: Even after the expiration of the time specified in 17B(1), Buyer retains the right to make requests to Seller, remove in writing the applicable contingency or cancel this Agreement until Seller cancels pursuant to 17C(1). Once Seller receives Buyer’s written removal of all contingencies, Seller may not cancel this Agreement pursuant to 17C(1).

(3)Seller right to Cancel: Buyer Contract Obligations: Seller, after first giving Buyer a Notice to Buyer to Perform (as specified below), may cancel this Agreement in writing and authorize return of Buyer’s deposit for any of the following reasons: (i) if Buyer fails to deposit funds as required by 2A or 2B; (ii) if the funds deposited pursuant to 2A or 2B are not good when deposited; (iii) if Buyer fails to provide a letter as required by 2H; (iv) if Buyer fails to provide verification as required by 21 or 2M: (v) if Seller reasonably disapproves of the verification provided by 21 or 2M; (vi) if Buyer fails to return statutory disclosures as required by paragraph 5A(2), or (vii) if Buyer fails to sign or initial a separate liquidated damage form for an increased deposit as required by paragraph 21. Seller is not required to give Buyer a Notice to Perform regarding Close Of Escrow.

(4)Notice To Buyer To Perform: The Notice to Buyer to Perform (C.A.R. Form NBP) shall (i) be in writing; (ii) be signed by Seller and (iii) give Buyer at least 24 (or x 72 ) hours (or until the time specified in the applicable paragraph, whichever occurs last) to take the applicable action. A Notice to Buyer to Perform may not be given any earlier than 2 Days Prior to the expiration of the applicable time for Buyer to remove a contingency or cancel the Agreement or meet an 17C(3) obligation.

D. EFFECT OF BUYER’S REMOVAL OF CONTINGENCIES: If Buyer removes, in writing, any contingency or cancellation rights, unless otherwise specified in a separate written agreement between Buyer and Seller, Buyer shall conclusively be deemed to have: (i) completed all Buyer Investigations, and review of reports and other applicable information and disclosures pertaining to that contingency or cancellation right; (ii) elected to proceed with the transaction; and (iii) assumed all liability, responsibility, and expense for Repairs or corrections pertaining to that contingency or cancellation right, or for inability to obtain financing.

E. EFFECT OF CANCELLATION ON DEPOSITS: If Buyer or Seller gives written notice of cancellation pursuant to rights duly exercised under the terms of this Agreement, Buyer and Seller agree to Sign mutual instructions to cancel the sale and escrow and release deposits, less fees and costs, to the party entitled to the funds. Fees and costs may be payable to service providers and vendors for services and products provided during escrow.

Release of funds will require mutual Signed release instructions from Buyer and Seller, judicial decision or arbitration award.

18.FINAL VERIFICATION OF CONDITION: Buyer shall have the right to make a final inspection of the Property within 5 (or     ) Days Prior to Close Of Escrow, NOT AS A CONTINGENCY OF THE SALE, but solely to confirm: (i) the Property is maintained pursuant to paragraph 11A; (ii) Repairs have been completed as agreed; and (iii) Seller has complied with Seller’s other obligations under this Agreement.

19.ENVIRONMENTAL HAZARD CONSULTATION: Buyer and Seller acknowledge: (i) Federal, state. and local legislation impose liability upon existing and former owners and users of real property, in applicable situations, for certain legislatively defined, environmentally hazardous substances; (ii) Broker(s) has/have made no representation concerning the applicability of any such Law to this transaction or to Buyer or to Seller, except as otherwise indicated in this Agreement; (iii) Broker(s) has/have made no representation concerning the existence, testing, discovery, location and evaluation of/for, and risks posed by, environmentally hazardous substances, if any, located on or potentially affecting the Property; and (iv) Buyer and Seller are each advised to consult with technical and legal experts concerning the existence, testing, discovery, location and evaluation of/for, and risks posed by. environmentally hazardous substances, if any, located on or potentially affecting the Property.

20.AMERICANS WITH DISABILITIES ACT: The Americans With Disabilities Act (“ADA”) prohibits discrimination

against individuals with disabilities. The ADA affects almost all commercial facilities and public accommodations. The ADA can require, among other things, that buildings be made readily accessible to the disabled. Different requirements apply to new construction, alterations to existing buildings, and removal of barriers in existing buildings. Compliance with the ADA may require significant costs. Monetary and injunctive remedies may be incurred if the Property is not in compliance. A real estate broker does not have the technical expertise to determine whether a building is in compliance with ADA requirements, or to advise a principal on those requirements. Buyer and Seller are advised to contact an attorney, contractor, architect, engineer or other qualified professional of Buyer’s or Seller’s own choosing to determine to what degree, if any, the ADA impacts that principal or this transaction.

21.LIQUIDATED DAMAGES: If Buyer fails to complete this purchase because of Buyer’s default, Seller shall retain, as liquidated damages, the deposit actually paid. Buyer and Seller agree that this amount is a reasonable sum given that it is impractical or extremely difficult to establish the amount of damages that would actually be suffered by Seller in the event Buyer were to breach this Agreement. Release of funds will require mutual, Signed release instructions from both Buyer and Seller, judicial decision or arbitration award.

BUYER AND SELLER SHALL SIGN A SEPARATE LIQUIDATED DAMAGES PROVISION FOR ANY INCREASED DEPOSIT (C.A.R. FORM RID).

22.DISPUTE RESOLUTION:

A.MEDIATION: Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action. Paragraphs 22B(2) and (3) below apply whether or not the Arbitration provision is initialed. Mediation tees, if any, shall be divided equally among the parties involved. If, for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees. even if they would otherwise be available to that party in any such action. THIS MEDIATION PROVISION APPLIES WHETHER OR NOT THE ARBITRATION PROVISION IS INITIALED.

B.ARBITRATION OF DISPUTES: (1) Buyer and Seller agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration, including and subject to paragraphs 22B(2) and (3) below. The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of real estate transactional Law experience, unless the parties mutually agree to a different arbitrator, who shall render an award in accordance with substantive California Law. The parties shall have the right to discovery in accordance with Code of Civil Procedure §1283.05. In all other respects, the arbitration shall be conducted in accordance with Title 9 of Part III of the California Code of Civil Procedure. Judgment upon the award of the arbitrator(s) may be entered into any court having jurisdiction. Interpretation of this agreement to arbitrate shall be governed by the Federal Arbitration Act.

(2)   EXCLUSIONS FROM MEDIATION AND ARBITRATION: The following matters are excluded from mediation and arbitration: (i) a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage, or installment land sale contract as defined in Civil Code §2985; (ii) an unlawful detainer action; (iii) the filing or enforcement of a mechanic’s lien; and (iv) any matter that is within the jurisdiction of a probate, small claims, or bankruptcy court. The filing of a court action to enable the recording of a notice of pending action, for order of attachment, receivership, injunction, or other provisional remedies, shall not constitute a waiver of the mediation and arbitration provisions.

(3) BROKERS: Buyer and Seller agree to mediate and arbitrate disputes or claims involving either or both Brokers, consistent with 22A and B. provided either or both Brokers shall have agreed to such mediation or arbitration prior to, or within a reasonable time after, the dispute or claim is presented to Brokers. Any election by either or both Brokers to participate in mediation or arbitration shall not result in Brokers being deemed parties to the Agreement.

“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISINGOUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.”

  “WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION TO NEUTRAL ARBITRATION.”

23.ASSIGNMENT:Buyer shall not assign all or any part of Buyer’s interests in this Agreement without first having obtained the written consent of Seller. Such consent shall not be unreasonably withheld,

unless otherwise agreed in writing. Any total or partial assignment shall not relieve Buyer of Buyer’s obligations pursuant to this Agreement.

24.SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon, and inure to the benefit of, Buyer and Seller and their respective successors and assigns, except as otherwise provided herein.

25.COPIES: Seller and Buyer each represent that Copies of all reports. documents, certificates. approvals and other documents that are furnished to the other are true, correct and unaltered Copies of the original documents, if the originals are in the possession of the furnishing party.

26.NOTICES: Whenever notice is given under this Agreement, each notice shall be in writing, and shall be delivered personally, by facsimile, or by mail, postage prepaid. Notice shall be delivered to the address set forth below the recipient’s signature of acceptance. Either party may change its notice address by providing notice to the other party.

27.AUTHORITY: Any person or persons signing this Agreement represent(s) that such person has full power and authority to bind that person’s principal, and that the designated Buyer and Seller has full authority to enter into and perform this Agreement. Entering into this Agreement, and the completion of the obligations pursuant to this contract, does not violate any Articles of Incorporation, Articles of Organization, ByLaws. Operating Agreement, Partnership Agreement or other document governing the activity of either Buyer or Seller.

28.GOVERNING LAW: This Agreement shall be governed by the Laws of the state of California.

29.PRORATIONS OF PROPERTY TAXES AND OTHER ITEMS: Unless otherwise agreed in writing, the following items shall be PAID CURRENT and prorated between Buyer and Seller as of Close Of Escrow: real property taxes and assessments, interest, rents, HOA regular, special, and emergency dues and assessments imposed prior to Close Of Escrow, premiums on insurance assumed by Buyer, payments on bonds and assessments assumed by Buyer, and payments on Mello-Roos and other Special Assessment District bonds and assessments that are now a lien. The following items shall be assumed by Buyer WITHOUT CREDIT toward the purchase price: prorated payments on Mello-Roos and other Special Assessment District bonds and assessments and HOA special assessments that are now a lien but not yet due. Property will be reassessed upon change of ownership. Any supplemental tax bills shall be paid as follows: (i) for periods after Close Of Escrow, by Buyer; and (ii) for periods prior to Close Of Escrow, by Seller. TAX BILLS ISSUED AFTER CLOSE OF ESCROW SHALL BE HANDLED DIRECTLY BETWEEN BUYER AND SELLER. Prorations shall be made based on a 30-day month.

30.WITHHOLDING TAXES: Seller and Buyer agree to execute any instrument, affidavit, statement or instruction reasonably necessary to comply with federal (FIRPTA) and California withholding Law, if required (C.A.R. Form AS).

31.MULTIPLE LISTING SERVICE/PROPERTY DATA SYSTEM: If Broker is a participant of a Multiple Listing Service (“MLS”) or Property Data System (“PDS”), Broker is authorized to report to the MLS or PDS a pending sale and, upon Close Of Escrow, the terms of this transaction to be published and disseminated to persons and entities authorized to use the information on terms approved by the MLS or PDS.

32.EQUAL HOUSING OPPORTUNITY: The Property is sold in compliance with federal, state and local anti­discrimination Laws.

33.ATTORNEY FEES: In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 22A.

34.SELECTION OF SERVICE PROVIDERS: If Brokers refer Buyer or Seller to persons, vendors, or service or product providers (“Providers”), Brokers do not guarantee the performance of any Providers. Buyer and Seller may select ANY Providers of their own choosing.

35.TIME OF ESSENCE; ENTIRE CONTRACT; CHANGES: Time is of the essence. All understandings between the parties are incorporated in this Agreement. Its terms are intended by the parties as a final, complete and exclusive expression of their Agreement with respect to its subject matter, and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. If any provision of this Agreement is held to be ineffective or invalid, the remaining provisions will nevertheless be given full force and effect. Neither this Agreement nor any provision in it may be extended, amended, modified, altered or changed, except in writing Signed by Buyer and Seller.

36.OTHER TERMS AND CONDITIONS, including attached supplements:

A. o Buyer Inspection Advisory (C.A.R. Form BIA)

B. o Seller Financing Addendum and Disclosure (C.A.R. Form SFA)

C. o Purchase Agreement Addendum (C.A.R. Form PAA paragraph numbers:                  )

D. o Buyer Intent to Exchange Supplement (C.A.R. Form BES)

E. x Seller Intent to Exchange Supplement (C.A.R. Form SES)

F. Buyer agrees to participate in Seller’s reverse 1031 exchange at no additional cost to Buyer

37. DEFINITIONS: As used in this Agreement:

A.“Acceptance” means the time the offer or final counter offer is accepted in writing by a party and is delivered to and personally received by the other party or that party’s authorized agent in accordance with this offer or a final counter offer.

B.“Agreement” means the terms and conditions of this accepted Commercial Property Purchase Agreement and

any accepted counter offers and addenda.

C.“C.A.R. Form” means the specific form referenced. or another comparable form agreed to by the parties.

D.“Close Of Escrow” means the date the grant deed, or other evidence of transfer of title, is recorded. If the scheduled close of escrow falls on a Saturday, Sunday or legal holiday, then close of escrow shall be the next business day after the scheduled close of escrow date.

E.“Copy-means copy by any means including photocopy, NCR, facsimile and electronic.

F.“Days” means calendar days, unless otherwise required by Law.

G.“Days After” means the specified number of calendar days after the occurrence of the event specified, not counting the calendar date on which the specified event occurs, and ending at 11:59PM on the final day.

H.“Days Prior” means the specified number of calendar days before the occurrence of the event specified, not counting the calendar date on which the specified event is scheduled to occur.

I.“Electronic Copy” or “Electronic Signature” means, as applicable, an electronic copy or signature complying with California Law. Buyer and Seller agree that electronic means will not be used by either one to modify or alter the content or integrity of the Agreement without the knowledge and consent of the other.

J.“Law” means any law, code, statute, ordinance, regulation, rule or order, which is adopted by a controlling city, county, state or federal legislative. judicial or executive body or agency.

K.“Notice to Buyer to Perform” means a document (C.A.R. Form NBP), which shall be in writing and Signed by Seller and shall give Buyer at least 24 hours (or as otherwise specified in paragraph 17C(4)) to remove a contingency or perform as applicable.

L.“Repairs” means any repairs (including pest control), alterations, replacements, modifications and retrofitting of the Property provided for under this Agreement.

M.“Signed” means either a handwritten or electronic signature on an original document, Copy or any counterpart.

N.Singular and Plural terms each include the other, when appropriate.

38. BROKERAGE: Neither Buyer nor Seller has utilized the services of, or for any other reason owes compensation to, a licensed real estate broker (individual or corporate), agent, finder, or other entity, other than as specified in this Agreement, in connection with any act relating to the Property, including, but not limited to, inquiries, introductions, consultations and negotiations leading to this Agreement. Buyer and Seller each agree to indemnify, defend, and hold the other, the Brokers specified herein and their agents, harmless from and against any costs, expenses or liability for compensation claimed inconsistent with the warranty and representations in this paragraph.

39. AGENCY:

A.POTENTIALLY COMPETING BUYERS AND SELLERS: Buyer and Seller each acknowledge receipt of a disclosure of the possibility of multiple representation by the Broker representing that principal. This disclosure may be part of a listing agreement, buyer-broker agreement or separate document (C.A.R. Form DA). Buyer understands that Broker representing Buyer may also represent other potential buyers, who may consider, make offers on or ultimately acquire the Property. Seller understands that Broker representing Seller may also represent other sellers with competing properties of interest to this Buyer.

B.CONFIRMATION: The following agency relationships are hereby confirmed for this transaction:

Listing Agent Keller Williams Realty-North (Print Firm Name) is the agent of (check one): x the Seller exclusively; or ¨ both the Buyer and Seller.

Selling Agent  Coldwell Banker Premier Real Estate (Print Firm Name) (if not same as Listing Agent) is the agent of (check one): x the Buyer exclusively: or ol the Seller exclusively; or o both the Buyer and Seller. Real Estate Brokers are not parties to the Agreement between Buyer and Seller.

40. JOINT ESCROW INSTRUCTIONS TO ESCROW HOLDER:

 A. The following paragraphs, or applicable portions thereof, of this Agreement constitute the joint escrow instructions of Buyer and Seller to Escrow Holder, which Escrow Holder is to use along with any related counter offers and addenda, and any additional mutual instructions to close the escrow: 1, 2, 4, 5, 16, 17E, 29, 30, 35 368-F, 37, 40, 42, 45A, 46 and paragraph D of the section titled Real Estate Broker on page 10. If a Copy of the separate compensation agreement(s) provided for in paragraph 42 or 45A, or paragraph D of the section titled Real Estate Broker on page 10 is deposited with Escrow Holder by Broker. Escrow Holder shall accept such agreement(s) and pay out from Buyer’s or Seller’s funds, or both, as applicable, the Broker’s compensation provided for in such agreement(s). The terms and conditions of this Agreement not set forth in the specified paragraphs are additional matters for the information of Escrow Holder, but about which Escrow Holder need not be concerned. Buyer and Seller will receive Escrow Holder’s general provisions directly from Escrow Holder and

    will execute such provisions upon Escrow Holder’s request. To the extent the general provisions are inconsistent or conflict with this Agreement, the general provisions will control as to the duties and obligations of Escrow Holder only. Buyer and Seller will execute additional instructions, documents and forms provided by Escrow Holder that are reasonably necessary to close the escrow.

B. A Copy of this Agreement shall be delivered to Escrow Holder within 3 business days after Acceptance (or o     ). Buyer and Seller authorize Escrow Holder to accept and rely on Copies and Signatures as defined in this Agreement as originals, to open escrow and for other purposes of escrow. The validity of this Agreement as between Buyer and Seller is not affected by whether or when Escrow Holder Signs this Agreement.

C. Brokers are a party to the Escrow for the sole purpose of compensation pursuant to paragraphs 42, 45A and paragraph D of the section titled Real Estate Broker on page 10. Buyer and Seller irrevocably assign to Brokers compensation specified in paragraphs 42 and 45A. respectively, and irrevocably instruct Escrow Holder to disburse those funds to Brokers at Close Of Escrow, or pursuant to any other mutually executed cancellation agreement. Compensation instructions can be amended or revoked only with the written consent of Brokers. Escrow Holder shall immediately notify Brokers: (i) if Buyer’s initial or any additional deposit is not made pursuant to this Agreement, or is not good at time of deposit with Escrow Holder; or (ii) if Buyer and Seller instruct Escrow Holder to cancel escrow.

D. A Copy of any amendment that affects any paragraph for which Escrow Holder is responsible shall be delivered to Escrow Holder within 2 business days after mutual execution of the amendment.

41.SCOPE OF BROKER DUTY: Buyer and Seller acknowledge and agree that: Brokers: (i) do not decide what price Buyer should pay or Seller should accept; (ii) do not guarantee the condition of the Property (iii) do not guarantee the performance, adequacy or completeness of inspections, services, products or repairs provided or made by Seller or others; (iv) shall not be responsible for identifying defects that are not known to Broker(s): (v) shall not be responsible for inspecting public records or permits concerning the title or use of the Property; (vi) shall not be responsible for identifying location of boundary lines or other items affecting title: (vii) shall not be responsible for verifying square footage, representations of others or information contained in inspection reports, MLS or PDS, advertisements, flyers or other promotional material, unless otherwise agreed in writing; (viii) shall not be responsible for providing legal or tax advice regarding any aspect of a transaction entered into by Buyer or Seller in the course of this representation; and (ix) shall not be responsible for providing other advice or information that exceeds the knowledge, education and experience required to perform real estate licensed activity. Buyer and Seller agree to seek legal, tax, insurance, title and other desired assistance from appropriate professionals.

42.BROKER COMPENSATION FROM BUYER: If applicable, upon Close Of Escrow. Buyer agrees to pay compensation to Broker as specified in a separate written agreement between Buyer and Broker.

43.TERMS AND CONDITIONS OF OFFER:

This is an offer to purchase the Property on the above terms and conditions. All paragraphs with spaces for initials by Buyer and Seller are incorporated in this Agreement only if initialed by all parties. If at least one but not all parties initial, a counter offer is required until agreement is reached. Seller has the right to continue to offer the Property for sale and to accept any other offer at any time prior to notification of Acceptance. Buyer has read and acknowledges receipt of a Copy of the offer and agrees to the above confirmation of agency relationships. If this offer is accepted and Buyer subsequently defaults, Buyer may be responsible for payment of Brokers’ compensation. This Agreement and any supplement, addendum or modification, including any Copy, may be Signed in two or more counterparts, all of which shall constitute one and the same writing.

44.EXPIRATION OF OFFER: This offer shall be deemed revoked and the deposit shall be returned, unless the offer is Signed by Seller, and a Copy of the Signed offer is personally received by Buyer, or by     Amy Meredith    , who is authorized to receive it by 5:00 PM on the third calendar day after this offer is signed by Buyer (OR, if checked o by January 11, 2007 (date), at 5:00 xAM  x  PM).

Buyer

David Elson

By

/s/: David Elson

Date

1-9-07

Print Name

David Elson

Address

City

State

Zip

Telephone

Fax

E-mail

Buyer

By

Date

Print Name

Address

City

State

Zip

Telephone

Fax

E-mail

45.BROKER COMPENSATION FROM SELLER:

        A.  Upon Close Of Escrow. Seller agrees to pay compensation to Broker as specified in a separate written agreement between Seller and Broker.

         B. If escrow does not close, compensation is payable as specified in that separate written agreement.

46.  ACCEPTANCE OF OFFER: Seller warrants that Seller is the owner of the Property. or has the authority to execute this Agreement Seller accepts the above offer, agrees to sell the Property on the above terms and conditions, and agrees to the above confirmation  of agency relationships. Seller has read and acknowledges receipt of a Copy of this Agreement, and authorizes Broker to deliver a Signed Copy to Buyer.

x (If checked) SUBJECT TO ATTACHED COUNTER OFFER, DATED     1-10-07

Seller /s/: Leah Pauly

By     Leah Pauly                                                                                                                         Date     1-31-07

Print Name     Coast National Bank

Address     500 Marsh Street                               City      San Luis Obispo           State     CA      Zip     93401

Telephone        805 543-3409     Fax     805 781-3180          E-mail     lpauly@cnb.com

Seller

By                                                                                                                                                  Date

Print Name

Address                                                            City                                                                      State         Zip    

Telephone                                          Fax                                  E-mail

(     /    ) Confirmation of Acceptance: A Copy of Signed Acceptance was personally received by Buyer or Buyer’s authorized agent on (date)      at      o  AM o PM. A binding Agreement  is created when a Copy of Signed Acceptance is personally received by Buyer or Buyer’s authorized agent  whether or not confirmed in this document. Completion  of this confirmation is not legally required in order to create a binding Agreement; it is solely  intended to evidence the date that Confirmation of Acceptance has  occurred.

REAL ESTATE BROKERS:

A. Real Estate Brokers are not parties to the Agreement between Buyer and Seller.

B.  Agency relationships are confirmed as stated in paragraph 39 above.

C.  If specified in paragraph 2A, Agent who submitted offer for Buyer acknowledges receipt of deposit.

D.  COOPERATING BROKER COMENSATION:  Listing Broker agrees to pay Cooperating Broker (Selling Firm) and Cooperating Broker agrees to accept, out of Listing Broker’s proceeds in escrow: (I) the amount specified in the MLS or PDS, provided Cooperating Broker is a Participant of the MLS or PDS in which the property is offered for sale or a reciprocal MLS or PDS: or (ii) (if checked) the amount specified in a separate written agreement (C.A.R. Form CBC) between Listing Broker and Cooperating Broker.

Real Estate Broker (Selling Firm):     Coldwell Banker Premier Real Estate     DRE Lic. #:     

By     /s/ Amy Meredith    Amy Meredith    DRE Lic. #:  01262113 Date:January 9, 2007

Address:     1288 Morro St., Ste 100     City:    San Luis Obispo     State:     CA     Zip:    93401

Telephone:       Fax:      E-mail:     

Real Estate Broker (Listing Firm)     Keller Williams Realty-North     DRE Lic. #     01460640

By     /s/: Shari Schramm     DRE Lic. #     01354595     Date January 10, 2007

Address     1314 Spring Street     City     Paso Robles     State     CA     Zip 93446

Telephone      Fax      E-mail     

ESCROW HOLDER ACKNOWLEDGMENT:

Escrow Holder acknowledges receipt of a Copy of this Agreement, (if checked. x a deposit in the amount of
$7,000.00) counter offer numbers      1,2,3,4    and     

     and agrees to act as Escrow Holder subject to paragraph 40 of this Agreement, any supplemental escrow instructions and the terms of Escrow Holder’s general provisions.

Escrow Holder is advised that the date of Confirmation of Acceptance of the Agreement as between Buyer and Seller is     1-31-07

Escrow Holder is First American Title Escrow # 2680185 M/C

Escrow  #  2680185 M/C

By     /s/: Margie Danley/Cindy Majewski                                                                                     Date     2/1/07

Address  504 First Street, Suite B, Paso Robles, CA 93446

Phone/Fax/E-mail     

Escrow Holder is licensed by the California Department of  ¨ Corporations, x Insurance,  ¨  Real Estate.  DRE
License #

(     /     ) REJECTION OF OFFER:  No counter offer is being made.  This offer is being made.  This offer was reviewed  (Seller’s Initials)    and rejected by seller on      (Date).

FINAL COUNTEROFFER NO. 4

Date      January 29, 2007     , at    Atascadero    , California

This is a counter offer to the: o Residential Purchase Agreement, o Counter Offer, x Other Commercial    
(“Offer”), dated     January 12, 2007, on property know as     2045 Spring Street (“Property”), between David Elson, (“Buyer), and     Coast National Bank     (“Seller),

1. TERMS: The terms and conditions of the above referenced document are accepted subject to the following:

A.Paragraphs in the Offer that require initials by all parties, but are not initialed by all parties, are excluded from the final agreement unless specifically referenced for inclusion in paragraph 1C of this or another Counter Offer.

B.Unless otherwise specified in writing, down payment and loan amount(s) will be adjusted in the same proportion as in the original Offer.

C.1. Expiration of Counter Offer Three is extended until February 02, 2007 at 5:00 pm

      2. Purchase price to be $730,000.00 (Seven —Hundred Thirty Thousand Dollars).

D.     The following attached addenda/supplements are incorporated in this Counter Offer: o Contract Addendum No.     o    o

2. RIGHT TO ACCEPT OTHER OFFERS: Seller reserves the right to continue to offer the Property for sale or for other transaction, and to accept any other offer at any time prior to communication of acceptance, as described in paragraph 3. If this is a Seller Counter Offer, Seller’s acceptance of another offer prior to Buyer’s acceptance and communication of acceptance of this Counter Offer, shall revoke this Counter Offer.

3. EXPIRATION: This Counter Offer shall be deemed revoked and deposits, if any, shall be refunded unless this Counter Offer is signed by the Buyer or Seller to whom it is sent and a Copy of the signed Counter Offer is personally received by the person making this Counter Offer or     Amy Meredith who is authorized to receive it by 5:00 PM on the third Day after this Counter Offer is made or, (if checked) by x date: February 2. 2007    (date), at     5:00     oAM  x   PM.

This Counter Offer may be executed in counterparts.

4. o (If Checked:) MULTIPLE COUNTER OFFER: Seller is making a Counter Offer(s) to another prospective buyer(s) on terms that may or may not be the same as in this Counter Offer.  Acceptance of this Counter Offer by Buyer shall not be binding unless and until it is subsequently re-Signed by Seller in paragraph 7 below and a Copy of the Counter Offer Signed in paragraph 7 is personally received by Buyer or by, who is authorized to receive it, by 5:00 PM on the third Day after this Counter Offer is made or, (if checked) by (date), at                   o   AM o  PM Prior to the completion of all of these events, Buyer and Seller shall have no duties or obligations for the purchase or sale of the Property.

5. OFFER:   x  BUYER OR o SELLER MAKES THIS COUNTER OFFER ON THE TERMS ABOVE AND ACKNOWLEDGES RECEIPT OF A COPY.

/s/: David A. Elson Date 1-30-07

                                                                                                                  Date

6. ACCEPTANCE: I/WE accept the above Counter Offer (If checked q SUBJECT TO THE ATTACHED COUNTER OFFER) and acknowledge receipt of a Copy.

                                                                                          Date                                                 &# 160;Time
o   AM  o   PM

                                                                                                       Date                            & #160;                     Time
o   AM  o  PM

7. MULTIPLE COUNTER OFFER SIGNATURE LINE: By signing below, Seller accepts this Multiple Counter Offer.

NOTE TO SELLER: Do NOT sign in this box until after Buyer signs in paragraph 6.) (Paragraph 7 applies only if paragraph 4 is checked.)

                                                                                          Date                                                  Time
o   AM  o   PM

                                                                                                       Date                            & #160;                     Time
o   AM  o   PM

8. (_       /       ) (Initials) Confirmation or Acceptance:  A Copy of Signed Acceptance was personally received by the maker of the Counter Offer, or that  the person’s authorized agent as specified in paragraph 3 (or, if this is a Multiple Counter Offer, the Buyer of Buyer’s authorized agent as specified in paragraph 4) on (date)                                      , at       o    AM      o  PM.  A binding Agreement is created  when  a Copy of Signed Acceptance is personally received by the maker of the Counter Offer, or that the person’s authorized agent (or, if this is a Multiple Counter Offer, the Buyer or Buyers authorized agent) whether or not confirmed in this document.  Completion of this confirmation is not legally required in order to create a binding Agreement: it is solely intended to evidence the date that Confirmation of Acceptance has occurred.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jack C. Wauchope, certify that:

1.I have reviewed this Quarterly Report on Form 10-QSB of Coast Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)       Designed such disclosure controls and procedure, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)       [Paragraph reserved pursuant to SEC Release 33-8238]

(c)       Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)       Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,  to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

Date:  May 15, 2007	/s/ Jack C. Wauchope
	Jack C. Wauchope
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I,  Karan C. Pohl, certify that:

6.I have reviewed this Quarterly Report on Form 10-QSB of Coast Bancorp;

7.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

8.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

9.The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(e)       Designed such disclosure controls and procedure, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(f)        [Paragraph reserved pursuant to SEC Release 33-8238]

(g)       Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(h)       Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

10.The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,  to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

(c)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(d)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

Date:  May 15, 2007	/s/ Karan C. Pohl
	Karan C. Pohl, CPA
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

The following certification accompanies the issuer’s quarterly report on Form 10-QSB and is not filed, as provided in Release 33-8212.  34-47551 dated April 21, 2004.

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying quarterly report on Form 10-QSB of Coast Bancorp for the quarter ended March 31, 2007, I, Jack C. Wauchope, Chief Executive Officer of Coast Bancorp, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  that:

(1)           such quarterly report on Form 10-QSB of Coast Bancorp for the quarter ended March 31, 2006, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           the information contained in such quarterly report on Form 10-QSB of Coast Bancorp for the quarter ended March 31, 2006, fairly presents, in all material respects, the financial condition and results of operations of Coast Bancorp.

A signed original of this written statement required by Section 906 has been provided to Coast Bancorp and will be retained by Coast Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

Dated:  May 15, 2007

/s/ Jack C. Wauchope

Jack C. Wauchope

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

The following certification accompanies the issuer’s quarterly report on Form 10-QSB and is not filed, as provided in Release 33-8212.  34-47551 dated April 21, 2004.

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying quarterly report on Form 10-QSB of Coast Bancorp for the quarter ended March 31, 2007, I, Karan C. Pohl, Chief Financial Officer of Coast Bancorp, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           such quarterly report on Form 10-QSB of Coast Bancorp for the quarter ended March 31, 2006, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           the information contained in such quarterly report on Form 10-QSB of Coast Bancorp for the quarter ended March 31, 2006, fairly presents, in all material respects, the financial condition and results of operations of Coast Bancorp.

A signed original of this written statement required by Section 906 has been provided to Coast Bancorp and will be retained by Coast Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

Dated:  May 15, 2007

/s/ Karan C. Pohl

Karan C. Pohl, CPA

Chief Financial Officer
(Principal Financial Officer)